Productivity Likely To Keep Fed Rate Low

September 26, 2003|By Craig Torres Bloomberg News

An accelerating economic expansion isn't producing new jobs because productivity is rising faster than growth, so Federal Reserve officials will keep interest rates low longer than in past recoveries, four Fed policy makers said this week.

Fed governor Donald Kohn called the second quarter's 6.8 percent annual rate of increase in productivity "astounding" in a paper on monetary policy and productivity published Wednesday. Separately, Atlanta Fed Bank President Jack Guynn, Dallas Fed Bank president Robert McTeer, and Boston Fed bank president Cathy Minehan also discussed the benefits and risks of rising worker efficiency rates this week.

"Surprisingly rapid productivity growth that did not feed through immediately to demand has had important implications for the stance of policy," Kohn said in a speech to a monetary conference at the Philadelphia Fed bank that was closed to the public. "Labor markets remain quite weak, and slack, if anything, has increased despite what many economists are estimating to be quite vigorous growth in the third quarter."

The Fed doesn't want inflation to fall further, or unemployment to move higher.